Municipal Broadband: Background and Policy Debate · Municipal Broadband: Background and Policy Debate Congressional Research Service 2 Finally, there is a cooperative model, which

Municipal Broadband:

Background and Policy Debate

Lennard G. Kruger

Specialist in Science and Technology Policy

Angele A. Gilroy

Specialist in Telecommunications Policy

April 6, 2016

Congressional Research Service

7-5700

www.crs.gov

R44080

Municipal Broadband: Background and Policy Debate


Summary Since the late 1990s, broadband Internet service has been deployed in the United States, primarily

by private sector providers. While broadband deployment has been rapid and robust overall, there

remain communities that are dissatisfied with their broadband service. Some of these

communities have turned to public entities as possible broadband providers, with the expectation

that municipal broadband networks (also referred to as “community broadband”) can deliver

superior levels of speed, performance, and/or affordability than what is currently offered by

private providers. Public entities that provide broadband service can be local governments or

public utilities, for example, and may construct and manage broadband networks either solely or

in partnership with private companies. There are a number of municipal broadband models that

have been implemented across the nation. Since each community is different and each faces

unique challenges, there is no one size that fits all.

Municipal broadband is controversial, because it involves governmental entities entering a

commercial telecommunications marketplace that had previously been the exclusive domain of

private sector providers. Supporters of municipal broadband argue that in view of substandard

broadband service, communities and local governments should be able to provide this service to

meet their citizens’ needs and to support the community’s economic development. Municipal

broadband opponents argue that public entities are ill-equipped to efficiently develop, operate,

and maintain commercial broadband networks, and that municipally owned and supported

broadband networks constitute unfair competition to private sector providers, which may

ultimately impede private investment in broadband infrastructure.

With under 500 municipalities across the nation embarking on some form of municipal

broadband, 20 states have passed laws placing restrictions (or in some cases, bans) on local

broadband networks. The issue for Congress is whether municipal broadband should be promoted

or discouraged, and more specifically, whether those state restrictions on municipal broadband

should be overridden or affirmed.

On March 12, 2015, the Federal Communications Commission (FCC) released a Memorandum

Opinion and Order granting the petitions filed by two municipal broadband providers in Wilson,

NC, and Chattanooga, TN, to preempt state laws in their respective states that restricted the

expansion of community broadband services. The Order and the decision by the FCC to rely on

Section 706 of the 1996 Telecommunications Act for its authority remain controversial. Both

states have filed petitions for review now consolidated in the U.S. Court of Appeals, 6th Circuit,

Cincinnati, challenging the FCC’s authority to preempt these restrictions.

Three bills (S. 240, S. 597, and H.R. 1106) have been introduced and one draft measure has been

released in the 114th Congress addressing the municipal broadband debate. The role of municipal

broadband and the appropriate role of the states and the FCC to address the relationship between

the public and private sector is just one facet in the overall debate regarding broadband

deployment. Whether municipal broadband should be encouraged or restricted is one of the many

policies that Congress continues to consider.



Contents

Background ..................................................................................................................................... 1

Municipal Broadband Networks in the United States ..................................................................... 2

Policy Debate: Pros and Cons ......................................................................................................... 3

Arguments in Favor of Municipal Broadband .......................................................................... 3 Arguments Opposed to Municipal Broadband .......................................................................... 4 Case Studies—Successes or Failures? ...................................................................................... 5

The Role of the Federal Communications Commission .................................................................. 6

The City of Wilson and the Power Board of Chattanooga Petitions ......................................... 7 The FCC Memorandum Opinion and Order ............................................................................. 7

Administration and FCC Initiatives ................................................................................................. 9

Congressional Activity—114th Congress ........................................................................................ 11

Policy Issues .................................................................................................................................. 12

Contacts

Author Contact Information .......................................................................................................... 14


Congressional Research Service 1

Background Broadband—also referred to as high-speed Internet service—has been deployed in the United

States since the late 1990s, primarily by private sector providers. These providers include

telephone companies, cable companies, wireless providers, and other entities that provide

commercial telecommunications services to residential, business, and institutional customers.

While broadband deployment has been rapid and robust overall, there are parts of the nation

where broadband is less deployed (primarily rural areas) and there remain regions and

communities that are dissatisfied with the level of broadband service currently offered by private

sector providers. These communities point to problems ranging from low download and upload

speeds, obsolete technology, poor reliability, high prices, and/or a lack of choice in providers.

With the Federal Communications Commission (FCC) moving to define the minimum speed of

broadband at 25 Mbps,1 more communities may perceive a lack of adequate broadband service,

especially those communities in rural areas.

As a solution, some communities have turned to public entities as possible broadband providers.

These communities anticipate that public entities may be able to provide municipal broadband at

superior levels of speed, performance, and affordability than what is currently offered by private

providers. Public entities that provide broadband service can be local governments or public

utilities, for example, and may construct and manage broadband networks either solely or in

partnership with private companies. There are a number of municipal broadband models that have

been implemented across the nation. Since each community is different and each faces unique

challenges, there is no one size that fits all.

Municipal broadband (also sometimes referred to as “community broadband”) is a somewhat

amorphous term that can signify many different ways that a local government might participate—

either directly or indirectly—in the provision of broadband service to the local community.

Municipal broadband models can include public ownership, public-private partnership, and a

cooperative model.

With public ownership, the local government is the principal entity building, financing, and

operating the broadband network. The network can be run by the local municipal electric utility

(Chattanooga, TN, and Lafayette, LA, are examples), or it can be run by a city department such as

the information technology (IT) department (as in Santa Monica, CA). There are also instances

where a publicly owned and built network might be opened to private providers to provide retail

Internet access or other services to the public.2

Public-private partnerships can come in many different forms, from public and private sector

entities sharing capital and operations costs, to governments providing access to public rights-of-

way or other city infrastructure (e.g., conduits, pole attachments) for privately funded and

operated networks, to government-funded projects contracting with private providers to build,

operate, and/or maintain the network. Partners can include private for-profit companies, local

non-profits, and even local residents.3

1 See Federal Communications Commission, 2015 Broadband Progress Report, available at https://www.fcc.gov/

reports/2015-broadband-progress-report. 2 New America Foundation, The Art of the Possible: An Overview of Public Broadband Options, May 6, 2014, p. 8,

available at https://static.newamerica.org/attachments/197-the-art-of-the-possible-an-overview-of-public-broadband-

options/TheArtofthePossible-OverviewofPublicBroadbandOptions_NAFOTI-CTC.pdf. 3 Ibid., p. 10.



Finally, there is a cooperative model, which refers to electric and telephone cooperatives, many of

which were originally created during rural electrification in the 1930s. These cooperatives, in

rural areas, have begun in some instances to provide broadband service. Many of the cooperatives

providing broadband service have received or are eligible for federal loan and grant support from

the Rural Utilities Service (RUS) of the U.S. Department of Agriculture (USDA). There are also a

few cooperatives that have been recently formed specifically for providing broadband service.

These typically rely on support from local governments and include the East Central Vermont

Community Fiber Network (ECFiber) and the WiredWest project in western Massachusetts.4

Aside from the models of how municipal broadband networks are governed, the nature of

broadband service offered by municipal broadband networks can vary. Municipal networks

may provide wholesale service (“middle-mile” infrastructure, where retail

providers connect into the municipal network), “last mile” retail service directly

to customers, or both;

may provide service solely to anchor institutions or also include businesses and

residences;

may serve solely within municipal boundaries or may be extended to surrounding

municipalities and counties;

may provide data or data bundled with video and/or voice, or may include smart

grid capacity; and

while most recent and proposed municipal broadband projects utilize fiber

infrastructure, other broadband technologies such as wireless or cable have also

been deployed.

Municipal Broadband Networks in the

United States Municipal broadband networks tend to be established in small and mid-sized communities, often

located in rural areas. With some exceptions, municipal broadband networks are typically not

located in major metropolitan areas, where many private providers already offer broadband

service.

The Institute for Local Self-Reliance (ILSR) lists 492 U.S. municipalities with broadband

networks. The complete list is included in the appendix of the January 2015 White House report

Community-Based Broadband Solutions: The Benefits of Competition and Choice for Community

Development and Highspeed Internet Access.5 This includes 89 communities with a publicly

owned fiber to the home (FTTH) network reaching most or all of the community, 76 communities

with a publicly owned cable network reaching most or all of the community, over 180

communities with some publicly owned fiber service available to parts of the community, over

4 Ibid., pp. 12-13. 5 Executive Office of the President, Community-Based Broadband Solutions: The Benefits of Competition and Choice

for Community Development and Highspeed Internet Access, January 2015, pp. 20-33, available at

http://www.whitehouse.gov/sites/default/files/docs/community-

based_broadband_report_by_executive_office_of_the_president.pdf.



110 communities with publicly owned dark fiber available, and over 40 communities in 13 states

with a publicly owned network offering at least 1 gigabit services.6

The magazine Broadband Communities lists 143 public and public-private fiber to the premises

(FTTP) network projects.7 This list identifies community fiber systems in 37 states and in

American Samoa. The largest number of deployments is in Washington (13), Kentucky (11),

Minnesota (10), Tennessee (8), Iowa (8), Illinois (7), and Florida (7).8

Policy Debate: Pros and Cons The virtues and drawbacks of municipal broadband have been vigorously debated by

policymakers and other stakeholders.9 Advocates for municipal broadband include groups aligned

with local communities, while opponents include private sector incumbent broadband providers

and state governmental entities.

Arguments in Favor of Municipal Broadband

The primary argument in favor of municipal broadband is rooted in the dissatisfaction of some

communities with existing broadband service that is offered by private providers. Many local

communities cite low speeds, high prices, a lack of competition, or even an absence of any

broadband service in particularly sparsely populated areas, and argue that they should be able to

provide this service to meet their citizens’ needs and to support the community’s economic

development. Pro-municipal broadband arguments include

Municipal broadband can enable small and mid-sized municipalities, often in

rural areas, to offer higher download and upload speeds. This is especially

important given that the FCC continues to identify a persistent “digital divide”

between rural areas (where 53% of Americans do not have broadband speeds of

at least 25 Mbps download/3 Mbps upload)10

and urban areas (where only 8% do

not have access to those speeds).11

Overall, 16% of American households are in

areas without a single provider of 25 Mbps/3 Mbps fixed services.12

6 Institute for Local Self-Reliance, “Community Network Map,” updated January 2015, available at

http://www.muninetworks.org/communitymap. 7 Zager, Masha, “Number of Community FTTP Networks Reaches 143,” Broadband Communities, August/September

2014, pp. 10-22, available at http://www.bbpmag.com/.http://www.bbpmag.com/2014mags/Aug_Sep/

BBC_Aug14_CommunityNetworks.pdf. 8 Ibid., p. 14. 9 Reports supporting municipal broadband include Executive Office of the President, Community-Based Broadband

Solutions: The Benefits of Competition and Choice for Community Development and Highspeed Internet Access,

January 2015; and New America Foundation, The Art of the Possible: An Overview of Public Broadband Options, May

6, 2014. Reports opposing municipal broadband include Advanced Communications Law & Policy Institute, New York

Law School, Understanding the Debate over Government-Owned Networks, June 2014; and Coalition for the New

Economy, The Hidden Problems with Government-Owned Networks, January 6, 2012. 10 In its 2015 Broadband Progress Report, the FCC raised its broadband speed benchmark from 4 Mbps (download)/1

Mbps (upload) to 25 Mbps/3 Mbps. This benchmark speed upgrade is controversial. The FCC argues that 25 Mbps/3

Mbps is reflective of advanced telecommunications capability, while many providers assert that the new benchmark is

too high, excessive, or aspirational. See Federal Communications Commission, 2015 Broadband Progress Report, FCC

15-10, February 4, 2015, pp. 29-34. 11 Federal Communications Commission, 2015 Broadband Progress Report, FCC 15-10, February 4, 2015, p. 4,

available at https://www.fcc.gov/reports/2015-broadband-progress-report. 12 Ibid., p. 47.



Municipal networks can inject competition in markets where there may be a

limited number of providers. According to the FCC, 45% of households have

only a single provider of broadband offering 25 Mbps/3 Mbps. A lack of

competition can lead to high prices, poor customer service, limited and restrictive

service packages, and delayed or no investment in advanced technologies such as

ultra-fast gigabit networks. A municipal broadband network, in some cases, can

induce private providers to lower prices and increase speeds in order to compete.

Municipal broadband can address unmet public interest needs. Private providers

tend to favor middle- to upper-income households which will generate adequate

revenue. Municipal broadband entities that are publicly owned may be more

likely to offer broadband to low-income households at affordable prices.

Municipal broadband follows the tradition of municipal utilities, which have

been providing basic utilities such as water, natural gas, and electricity for many

years.

Arguments Opposed to Municipal Broadband

The main argument against municipal broadband (typically referred to by some opponents as

“government-owned broadband”) is that it is inappropriate for government-sponsored, -owned, or

-supported networks to compete with private providers. Municipal networks have unfair inherent

advantages over existing private networks, including preferential treatment with respect to rights

of way and other local regulatory barriers, and financing by direct taxpayer subsidies or

government bonds with below-market interest rates. This advantage can result in market-

distorting effects that can unfairly skew the competitive playing field between private and public

providers. Anti-municipal broadband arguments include

Deploying broadband systems is inherently high-risk, because unlike basic

utilities like water or electricity, there are typically competing providers and not

all customers will necessarily sign up for service. Governments can be ill-

equipped to plan, operate, and maintain efficient commercial broadband systems,

and if they fail, the taxpayers will be liable for the cost of that failure.

Taxpayer money should more appropriately be directed toward basic

infrastructure needs—such as roads, bridges, and water systems—that are

traditionally under the purview of government. In the United States, broadband is

primarily provided by the private sector. Public money that is directed toward

municipal broadband is money that is taken away from other, more critical

infrastructure needs.

According to the FCC, “private industry continues to invest billions of dollars to

expand America’s broadband networks.”13

Because of the market-distorting

effects of municipal broadband, continued private sector investment in broadband

networks might be discouraged in some cases.

The broadband market is subject to rapid technological change and intense

competition. The bureaucracy of government is not well suited to making policy

decisions in a dynamic and rapidly changing environment. This poses the risk of

municipal broadband networks being reliant on soon-to-be obsolete technologies.

13 Ibid., p. 9.



Case Studies—Successes or Failures?

While all agree that there is risk in municipal broadband, supporters and opponents argue over the

significance of “successes” and “failures” among existing municipal broadband projects. With

hundreds of municipal broadband projects to choose from, there will always be examples to fit

whichever definition of “success” or “failure” that observers choose to apply. In general,

municipal broadband supporters point to projects that have provided improved services, lower

prices, increased competition, and an improved climate for private-sector investment in the local

economy.14

Municipal broadband opponents cite examples where government-owned networks

have not been profitable, have discouraged private competition, and have been subject to

managerial inefficiency or technological obsolescence.15

In some cases, both proponents and opponents of municipal broadband have cited the same

municipal broadband project to bolster their arguments. For example, in 2005, the community of

Lafayette, LA, voted to build a municipal fiber network called LUS Fiber. LUS Fiber, financed by

bond revenues, was built in 2008 and connected to its first customers in 2009.

According to the White House report Community-Based Broadband Solutions: The Benefits of

Competition and Choice for Community Development and Highspeed Internet Access, LUS

Fiber’s network has increased customer savings and strengthened local anchor institutions:

As competing firms adjusted their plans to account for LUS Fiber’s market entry,

residents who weren’t customers of the network started to see lower prices. Cox

Communications, a major regional provider which had raised rates six times in four

years, kept its rates stable from 2004 to 2007 to account for LUS’s possible market entry.

Still, LUS’s prices have been consistently lower than those offered by Cox. Terry Huval,

the director of LUS, estimates that the community saved $4 million from these deferred

rate increases. Using estimates of Cox’s average competing discounts and LUS Fiber’s

lower rates, LUS projects the fiber system will create total savings of between $90 and

$100 million over its first 10 years.

The fiber network has brought in companies eager to obtain fast service at lower prices.

Pixel Magic brought 100 to 200 jobs when it built an office in Lafayette to accomplish

work on the movie “Secretariat.” The high speed capability of the broadband network

was a big factor in their eventual decision to maintain their office in Louisiana

permanently. The tech startup firm Skyscraper Holding moved from Los Angeles to

Lafayette to obtain 100 Mb/s speeds at a fraction of the cost the company was charged on

the west coast.16

14 See for example: Executive Office of the President, Community-Based Broadband Solutions: The Benefits of

Competition and Choice for Community Development and Highspeed Internet Access, January 2015, pp. 13-18;

Institute for Local Self-Reliance, Community Broadband Networks, “Successes and Failures,” available at

http://www.muninetworks.org/content/successes-and-failures; and Edward Wyatt, “Fast Internet is Chattanooga’s New

Locomotive,” New York Times, February 3, 2014. 15 See for example: Thomas A. Schatz and Royce Van Tassell, “Municipal Broadband Is No Utopia,” Wall Street

Journal, June 19, 2014; Free State Foundation, “Another One Bites the Dust: Burlington Telecom’s Failure Shows,

Again, That Government-Operated Broadband Networks Are Not The Solution,” March 3, 2014, available at

http://freestatefoundation.blogspot.com/2014/03/another-one-bites-dust-burlington.html; and George S. Ford, Phoenix

Center for Advanced Legal & Economic Public Policy Studies, “Why Chattanooga Is Not the ‘Poster Child’ for

Municipal Broadband,” January 20, 2015, available at http://www.phoenix-center.org/perspectives/Perspective15-

01Final.pdf. 16 Community-Based Broadband Solutions: The Benefits of Competition and Choice for Community Development and

Highspeed Internet Access, p. 16.



Municipal broadband opponents have a different take on LUS Fiber, stating the network is 30%

short of its revenue projection as set out in its business plan, more than $160 million in debt, and

struggling to compete with cable, telephone, wireless, and satellite service providers in terms of

price, performance, and service options.17

The think tank R Street noted that LUS Fiber received a

warning from city auditors about low revenues and stated:

Lafayette’s auditors voiced similar concerns in their reports the last two years. In 2012,

they punctuated it with a calculation that the $140-million system was costing the city

$45,000 a day.

Now, after six years of operation, prospects aren’t much better. The city’s financial

reports, provided by a source in Lafayette, show that for the fiscal year ended Oct. 31,

2013, LUS Fiber reported $23 million in operating revenues, compared to $36.7 million

that was forecast in its feasibility study. The system incurred a $2.5 million operating loss

for the year. According to the original plan, this was to be the point where the operation

swung to a profit of $902,000. The most staggering number, however, is LUS Fiber’s

deficit, which stood at $47 million at the end of October, up from $37.1 million the year

before.18

The Role of the Federal Communications

Commission The FCC, an independent federal agency charged with regulating interstate and international

communications, has taken an active role in promoting the deployment of broadband services and

broadband infrastructure.19

The FCC has adopted numerous proceedings to facilitate access to and

the adoption of advanced services including the following:

the transition of the Universal Service Fund from a mechanism that supports

voice service to one that supports the deployment and adoption of both fixed and

mobile broadband;

the modernization of the Schools and Libraries Program to incorporate high

speed broadband and Wi-Fi connections; and

the expansion of the Lifeline Program to provide support for broadband as well

as voice services, to name a few.

FCC Chairman Wheeler has also stated on numerous occasions his support for the development

of community-based broadband service options and has expressed his opinion that the FCC has

the authority to preempt state laws that ban competition from community broadband.20

17 Steven Titch, Reason Foundation, Lessons in Municipal Broadband from Lafayette, Louisiana, November 2013, pp.

i-ii, available at http://reason.org/files/municipal_broadband_lafayette.pdf. A rebuttal was published by Christopher

Mitchell, MuniNetworks.org, and Institute for Local Self-Reliance, Correcting Community Fiber Fallacies: The Reality

of Lafayette’s Gigabit Network, September 2014, available at http://ilsr.org/wp-content/uploads/downloads/2014/10/

fiberfallacieslusfiber.pdf. 18 Titch, Steven, R Street, Muni broadband: The Gift That Keeps on Taking, May 30, 2014, available at

http://www.rstreet.org/2014/05/30/muni-broadband-the-gift-that-keeps-on-taking/. 19 For a further discussion of the structure and role of the FCC see CRS Report RL32589, The Federal Communications

Commission: Current Structure and Its Role in the Changing Telecommunications Landscape, by Patricia Moloney

Figliola. 20 For example, see the statement of FCC Chairman Wheeler before the House Subcommittee on Communications and

Technology, May 20, 2014, hearing on “Oversight of the Federal Communications Commission,” available at

(continued...)



The City of Wilson and the Power Board of Chattanooga Petitions

On July 24, 2014, two local municipally owned broadband providers, the City of Wilson

(Wilson), an North Carolina municipal corporation, and the Electric Power Board of Chattanooga

(EPB), an independent board of the City of Chattanooga, TN, separately petitioned the FCC to

preempt certain provisions of their respective states’ laws which they claimed restricted the

further deployment of their networks.21

Both Wilson and EPB operate electric utilities that also offer gigabit speed broadband networks

that provide data, video, and voice services. Wilson provides electric service in six counties in

eastern North Carolina and broadband service solely in Wilson County.22

Wilson claims that

despite “... numerous requests for these services ... in the other five counties.... ” and a willingness

to expand broadband services to these counties, it cannot, due to what it stated are overly

burdensome provisions in state law that in effect have “... the purpose and effect of prohibiting it

from doing so.”23

As in the case of Wilson, EPB states that it regularly receives requests from

citizens and businesses, located outside of EPB’s electric service territory, to provide advanced

telecommunications services (e.g., broadband Internet access and services). EPB states that it is

willing to provide these services and expand its service footprint, but is restricted by Tennessee

state law that permits authorized municipal electric systems to provide Internet service (as well as

cable service and video), but only within the boundaries of their (electric) service areas.24

Both

petitioners allege that existing provisions in their respective states’ laws restricted their ability to

expand their broadband services to surrounding areas where customers have expressed interest in

these services and both request that the FCC use its authority pursuant to Section 706 of the

Telecommunications Act of 1996 to preempt these laws.25

The FCC Memorandum Opinion and Order

The FCC’s Wireline Competition Bureau released a public notice on July 28, 2014, establishing a

pleading cycle for the petitions setting comment and reply dates of August 29, 2014, and

September 29, 2014, respectively.26

After consideration of record the FCC, in a February 26,

(...continued)

https://apps.fcc.gov/edocs_public/attachmatch/DOC-327165A1.pdf. However, it should be noted that this opinion is

not universally held by all of the FCC Commission members. 21 Petition of the City of Wilson, North Carolina, Pursuant to Section 706 of the Telecommunications Act of 1996, for

Removal of Barriers to Broadband Investment and Competition, filed July 24, 2014, available at http://apps.fcc.gov/

ecfs/document/view?id=7521737310.

Petition of the Electric Power Board of Chattanooga, Tennessee, Pursuant to Section 706 of the Telecommunications

Act of 1996, for Removal of Barriers to Broadband Investment and Competition, filed July 24, 2014, available at

https://www.epb.net/downloads/legal/EPB-FCCpetition.pdf. 22 Wilson County qualified for a grandfathering exemption since it provided these services in that county prior to the

law’s passage, but is not permitted to provide these services in the five other counties in which it provides electric

service. 23 Wilson petition, p. 2. (N.C. Gen. Stat. §160a-340 through 160a-340.6). 24 EPB petition, p. 16. (Tenn. Code Ann. §7-52-601). 25 Section 706 of the Telecommunications Act of 1996, P.L. 104-104, §706, 110 Stat. 56, 153 (1996), as amended by

the Broadband Data Improvement Act, P.L. 110-385, 122 Stat. 4096 (2008), is now codified in Title 47, Chapter 12 of

the United States Code, at 47 U.S.C. §1302. 26 Pleading Cycle Established for Comments on Electric Power Board and City of Wilson Petitions, Pursuant to Section

706 of the Telecommunications Act of 1996, Seeking Preemption of State Laws Restricting the Deployment of Certain

Broadband Networks, WC Docket Nos. 14-115 and 14-116, Public Notice, DA 14-1072 (Wireline Comp. Bur. rel. July

(continued...)



2015, action, granted the petitions to preempt state laws in North Carolina and Tennessee that

restricted the expansion of community broadband services.27

In a Memorandum Opinion and

Order (Order), which became effective upon its release on March 12, 2015, the FCC stated that

selected provisions of the laws in North Carolina and Tennessee are barriers to broadband

deployment, investment, and competition, and conflict with the FCC’s mandate to promote these

goals.28

The FCC relied upon its authority under Section 706 of the 1996 Telecommunications Act

(Section 706), which directs the FCC to “... encourage the deployment on a reasonable and timely

basis of advanced telecommunications capability to all Americans ... by utilizing ... measures that

promote competition in the local telecommunications market, or other regulating methods that

remove barriers to infrastructure investment.”29

According to the Order the FCC concludes that

“... preemption meets the standard for action under Section 706 because it will remove barriers to

overall broadband infrastructure investment and promote overall competition in the

telecommunications market in Tennessee and North Carolina.”30

Furthermore, the Order stated

that “... preemption of these restrictions will expand broadband investment and deployment,

increase competition, and serve the public interest, as Section 706 intended.”31

The FCC preempted the geographic restrictions of both the Tennessee and North Carolina laws

stating that they are barriers to broadband infrastructure investment and competition and

preempted additional provisions of the North Carolina law containing other limitations, stating

that the cumulative effect of those provisions collectively amounts to a barrier to broadband

investment and competition.32

These barriers are in clear conflict, the Order states, with Section

706, which directs the FCC to take action to remove such barriers. More specifically the Order

concludes that in the case of the EPB petition “the territorial restriction in Tennessee Code

Section 601 is a barrier to broadband deployment and infrastructure investment and limits

competition.”33

With regard to the Wilson petition, the Order concludes that the geographic

restrictions34

and other, but not all of the remaining provisions of North Carolina law cited in the

petition, when considered holistically, represent a barrier to broadband infrastructure investment

(...continued)

28, 2014). Available at http://apps.fcc.gov/eefs/document/view?id=7521737783. 27 The 3-2 vote fell along party lines with Chairman Wheeler and Commissioners Clyburn and Rosenworcel approving

and Commissioners Pai and O’Rielly dissenting. Statements of the Chairman and the commissioners available at

https://apps.fcc.gov/edocs_public/attachmatch/FCC-15-25A1.pdf. 28 In the Matter of City of Wilson, North Carolina, Petition for Preemption of North Carolina General Statute Sections

160A-340 et seq., and the Electric Power Board of Chattanooga, Tennessee, Petition for Preemption of a Portion of

Tennessee Code Annotated Section 7-52-601, WC Docket No. 14-115 and WC Docket No. 14-116. Released March

12, 2015. Available at https://apps.fcc.gov/edocs_public/attachmatch/FCC-15-25A1.pdf. 29 The Telecommunications Act of 1996, P.L. 104-104, §706. 30 Order, at para. 42. 31 Order, at para. 15. 32 The EPB petition is granted and the Wilson petition is granted in part, Order, paras 183 and 184. The FCC

determined that not every provision of the North Carolina law represents a barrier to infrastructure investment or

thwarts competition such that they felt compelled to preempt it, para. 182. 33 Order at para. 168 and paras. 77-79. 34 As stated in the Order “... restrictions on the provision of bundled services undermines a provider’s ability to provide

broadband successfully due to a strong customer preference for bundled offerings.” Order, para. 119.



or thwart competition.35

Therefore the Wilson petition is granted in part to the extent discussed in

the Order and otherwise denied.36

The FCC stated that while it believes it cannot preempt state laws that outright ban municipal

broadband networks, it can intervene (under the authority contained in Section 706) if a state

allows municipal broadband networks, but imposes restrictions that create barriers to a timely and

reasonable deployment of advanced telecommunications services to all Americans. That is, the

FCC cannot require a state to allow municipal broadband networks, but it can preempt laws that

impose restrictions on an existing network if they are creating barriers to deployment of such

networks.37

While the Order states that this ruling only applies to provisions of the laws of the

two states (North Carolina and Tennessee) of the two petitioners, the FCC noted that “... the

Commission [FCC] will not hesitate to preempt similar statutory provisions in factual situations

where they function as barriers to broadband investment and competition.”38

Whether the FCC does, or does not, have the legal authority under Section 706 to preempt state

laws that restrict municipal broadband deployment remains controversial.39

While the majority of

the FCC commissioners (Chairman Wheeler and Commissioners Clyburn and Rosenworcel)

voted in favor of this decision, it was not unanimous. Both Commissioner Pai and Commissioner

O’Rielly dissented, stating that the FCC lacked the authority to grant the petitions.40

Both the state of Tennessee and the state of North Carolina have filed lawsuits (petitions for

review) challenging the FCC’s authority to preempt these restrictions. The state of Tennessee filed

its petition on March 20, 2015, with the U.S. Court of Appeals 6th Circuit, Cincinnati.

41 The state

of North Carolina filed its petition on May 11, 2015, with the U.S. Court of Appeals 4th Circuit,

Richmond.42

These petitions were consolidated on August 3, 2015, in the U.S. Court of Appeals

6th Circuit, Cincinnati and a briefing schedule set.

43 Oral argument was held on March 17, 2016.

Administration and FCC Initiatives In January 2015, President Obama announced steps “to help more Americans, in more

communities around the country, get access to fast and affordable broadband.”44

In addition to

supporting the FCC Order (discussed above), the Administration plan contained several initiatives

directly relevant to municipal broadband, including the following.

35 Order, at paras.94 and 182. 36 See Order, paras. 123-129 for the justification for not preempting selected provisions and paras. 123 and 182 for a

list of the provisions of North Carolina law not preempted. 37 Order, at paras. 11, 162-167. 38 Order, at para. 16. 39 The legality of this action goes beyond the scope of this report. For a discussion of the legal issues regarding

municipal broadband and federal preemption see CRS Legal Sidebar, Municipal Broadband and Federal Preemption,

by Kathleen Ann Ruane. 40 Dissenting Statement of Commissioner Ajit Pai and Dissenting Statement of Commissioner Michael O’Rielly.

Available at https://apps.fcc.gov/edocs_public/attachmatch/FCC-15-25A1.pdf. 41 Tennessee v. FCC, Case No. 15-3291 (6th Cir.) petition for review filed March 20, 2015. 42 North Carolina v. FCC, Case No. 15-1506 (4th Cir.) petition for review filed May 11, 2015. 43 Copies of the Order and briefing schedule are available at https://prodnet.www.neca.org/publicationsdocs/wwpdf/

8315order2.pdf and https://prodnet.www.neca.org/publicationsdocs/wwpdf/8315briefletter.pdf. 44 The White House, Fact Sheet, “Broadband That Works: Promoting Competition & Local Choice in Next-Generation

Connectivity,” January 13, 2015, available at https://www.whitehouse.gov/the-press-office/2015/01/13/fact-sheet-

broadband-works-promoting-competition-local-choice-next-gener.



Establishment of the Broadband Opportunity Council. On March 23, 2015, the

President signed a Presidential Memorandum, “Expanding Broadband

Deployment and Adoption by Addressing Regulatory Barriers and Encouraging

Investment and Training.”45

The memorandum established an interagency

Broadband Opportunity Council which will be chaired by the Department of

Commerce (DOC) and the USDA, and consist of 25 other member agencies. The

Council’s objectives are to engage with industry and other stakeholders to

understand ways the government can better support the needs of communities

seeking to expand broadband access and adoption; identify regulatory barriers

unduly impeding broadband deployment, adoption, or competition; survey and

report back on existing programs that currently support or could be modified to

support broadband competition, deployment, or adoption; and take all necessary

actions to remove these barriers and realign existing programs to increase

broadband competition, deployment, and adoption. On April 29, 2015, DOC and

USDA put out a notice and request for public comment in the Federal Register.46

The Council is supposed to submit a final report to the President in August

2015.47

BroadbandUSA. Based on the expertise acquired from administering the

American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5)

broadband stimulus program (specifically the Broadband Technology

Opportunities Program), the National Telecommunications and Information

Administration (NTIA) has established an information and best-practices

resource available to communities seeking to develop broadband public-private

partnerships.48

BroadbandUSA49

will offer online and in-person technical

assistance to communities; host a series of regional workshops around the

country; and publish guides and tools50

intended to help communities address

problems in broadband infrastructure planning, financing, construction, and

operations across many types of business models.

Community Broadband Summit. The White House announced that it will convene

a Community Broadband Summit where city and county officials will share

information and experiences in deploying broadband for their communities. On

March 23, 2015, the White House announced it will host the Community

45 Available at https://www.whitehouse.gov/the-press-office/2015/03/23/presidential-memorandum-expanding-

broadband-deployment-and-adoption-addr. 46 Department of Commerce and Department of Agriculture, “Broadband Opportunity Council Notice and Request for

Comment,” Federal Register, Vol. 80, No. 82, April 29, 2015, pp. 23785-23787, available at http://www.ntia.doc.gov/

files/ntia/publications/fr_boc_notice_and_rfc_4-29-15.pdf. 47 Department of Commerce and Department of Agriculture, “Broadband Opportunity Council (BOC) Request for

Comments,” Webinar, May 20, 2015, p. 5, available at http://www.ntia.doc.gov/files/ntia/publications/

boc_rfc_slides_2015_05_20_final.pdf. 48 Lawrence E. Strickling, Administrator, National Telecommunications and Information Administration, “NTIA

Announced BroadbandUSA Effort to Assist Communities with Broadband Plans,” January 14, 2015, available at

http://www2.ntia.doc.gov/ntia_announces_broadbandusa_effort. 49 Available at http://www2.ntia.doc.gov/. 50 See for example, NTIA, BroadbandUSA: An Introduction to Effective Public-Private Partnerships for Broadband

Investments, January 2015, 16 p., available at http://www2.ntia.doc.gov/files/ntia_ppp_010515.pdf.



Broadband Summit in June 2015.51

To date, the scheduling of the Community

Broadband Summit has not been announced.

The federal government has also affected municipal broadband through broadband funding

programs. While municipal broadband projects are locally directed and funded, the federal

government has supported these efforts by helping to finance some of the middle-mile fiber

networks that municipal networks can interconnect with. A major funding vehicle for middle-mile

fiber networks was the $7 billion broadband stimulus program established by the ARRA.52

ARRA

Awards were made in FY2009 and FY2010, and projects are completed or in the final stages of

completion.53

Going forward, the ARRA broadband programs have concluded and no more

funding will be awarded.

Currently, there are three ongoing programs at the RUS that provide funding for broadband

infrastructure (although at funding levels significantly less than what was provided in the ARRA

broadband programs). These are Farm Bill Broadband Loans and Loan Guarantees54

($20.6

million loan level in FY2016), Telecommunications Infrastructure Loans and Loan Guarantees55

($690 million loan level yearly), and Community Connect Grants56

($10.4 million in FY2016).

While local governmental entities are eligible to apply for these programs, funding has tended to

go to private providers.

The other major existing federal vehicle for funding broadband infrastructure is the Connect

America Fund (CAF). While RUS grants and loans are used as up-front capital to invest in

broadband infrastructure, the CAF provides ongoing subsidies to keep the operation of broadband

networks in high-cost areas economically viable for providers.

Congressional Activity—114th Congress Three bills (S. 240, S. 597, and H.R. 1106) have been introduced, and one draft measure (H.R.__)

released, in the 114th Congress that address the municipal broadband debate. Provisions in these

measures range from those that restrict states and localities from enacting laws that prohibit

public (municipal) broadband (S. 240) to those that prevent the FCC from preempting current or

future state and local laws that prohibit municipal broadband (S. 597 and H.R. 1106), and in the

case of the discussion draft (H.R. __), preempt the FCC and/or any state regulatory authority from

using Section 706 as a source of authority to preempt state laws (e.g., those that prohibit

municipally owned broadband networks).

The Community Broadband Act of 2015 (S. 240), introduced by Senator Booker on January 22,

2015, seeks to remove state barriers for constructing municipal broadband networks and

encourages public-private partnerships. S. 240 provides that no state or local statute may prohibit,

51 The White House, Fact Sheet, “Next Steps in Delivering Fast, Affordable Broadband,” March 23, 2015, available at

https://www.whitehouse.gov/the-press-office/2015/03/23/fact-sheet-next-steps-delivering-fast-affordable-broadband. 52 See CRS Report R41775, Background and Issues for Congressional Oversight of ARRA Broadband Awards, by

Lennard G. Kruger. 53 A listing of Broadband Technology Opportunity Program (BTOP) infrastructure awards made by the National

Telecommunications and Information Administration (NTIA) is available at http://www2.ntia.doc.gov/infrastructure.

Broadband Initiative Program (BIP) awards made by the Rural Utilities Service (RUS) are available at

http://www.rd.usda.gov/files/reports/RBBreportV5ForWeb.pdf. 54 See http://www.rd.usda.gov/programs-services/farm-bill-broadband-loans-loan-guarantees. 55 See http://www.rd.usda.gov/programs-services/telecommunications-infrastructure-loans-loan-guarantees. 56 See http://www.rd.usda.gov/programs-services/community-connect-grants.



or have the effect of prohibiting or substantially prohibiting, any public entities from providing

either telecommunications services (e.g., telephone services) or advanced telecommunications

capability or services (e.g., broadband Internet access services). With respect to the private

provider that a municipality regulates, S. 240 requires a public provider not to discriminate in

favor of its own public network with respect to how it applies municipal ordinances, rules,

policies, and fees related to requirements such as rights of way and permitting. S. 240 encourages

public-private partnerships and requires extensive public notice of proposed municipal broadband

projects, including an opportunity for private providers to bid on that proposed project. The anti-

discrimination and public notice requirements in the bill would not apply where a public provider

does not provide telecommunications or broadband services to the public “or to such classes of

users as to make the capability or services effectively available to the public,” or during an

emergency. S. 240 prohibits the use of federal funds to assist a public provider in reviving or

renewing a project that has failed due to bankruptcy or termination. The bill was referred to the

Senate Committee on Commerce, Science, and Transportation.

The State’s Rights Municipal Broadband Act of 2015 (S. 597 and H.R. 1106), introduced on

February 26, 2015, by Senator Tillis and Representative Blackburn, respectively, states that the

FCC cannot preempt states with municipal broadband laws already in place, or any other states

that subsequently adopt such municipal broadband laws. The bill also includes a Sense of

Congress stating that the FCC does not have the legal authority under Section 706 to prohibit

states from implementing any law of such state with respect to the provision of broadband

Internet access service (e.g., municipal broadband restrictions). The bills were referred to the

Senate Committee on Commerce, Science, and Transportation and the House Subcommittee on

Communications and Technology, respectively.

Draft legislation57

released on January 16, 2015, by Republican leaders of the House Energy and

Commerce Committee and the Senate Committee on Commerce, Science, and Transportation

includes a provision that prohibits the FCC, or any state commission with regulatory authority

over telecommunications services, from relying on Section 706 as a grant of authority. If enacted

this would be in direct conflict with the FCC’s final Order, which rests on its Section 706

authority to preempt selected provisions of North Carolina and Tennessee law that restrict

municipal broadband deployment.

Policy Issues Since the private sector began deploying broadband infrastructure in the late 1990s, Congress and

the FCC have sought to enact policies and programs that address the directive of Section 706 to

“encourage the deployment on a reasonable and timely basis of advanced telecommunications

capability to all Americans.”

With respect to municipal broadband, the issue for Congress is whether locally owned and/or

supported networks should be encouraged or restricted. The debate is complicated by the

diversity of municipal broadband projects. Each community and project is unique and subject to

different factors that can lead to its ultimate success or failure. Abundant examples of successes

and failures are available to support arguments made by both supporters and opponents alike.

In addressing municipal broadband, Congress and the FCC have sought to balance two competing

public policy interests. On the one hand, with hundreds of municipal broadband projects

57 Available at http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/114/BILLS-114hr-

PIH-OpenInternet.pdf.



underway in communities across the country, with other communities exploring various kinds of

municipal networks that might offer higher speeds at affordable prices, and with 20 state laws that

ban or restrict municipal broadband projects, many have argued that state restrictions be

overridden either by congressional legislation or by FCC rule. Ultimately, as discussed above, on

March 12, 2015, the FCC released an order lifting restrictions on municipal broadband networks

in Wilson, NC, and Chattanooga, TN.

On the other hand, counterbalancing arguments point to the primacy of private sector providers in

deploying the nation’s broadband. Municipal broadband opponents argue that public entities are

ill-equipped to efficiently develop, operate, and maintain commercial broadband networks, and

that municipally owned and supported broadband networks constitute unfair competition to

private sector providers, and may ultimately impede private investment in broadband

infrastructure.

One way that Congress has addressed the debate is through its oversight and authorization of the

FCC. Committees with jurisdiction over telecommunications policy—such as the House Energy

and Commerce Committee and the Senate Commerce, Science and Transportation Committee—

are considering measures reflecting both sides of the issue: from preventing the FCC from

overruling state municipal broadband restrictions on the one hand, to overriding those state-

imposed restrictions on the other.

Congress can also have an impact through the appropriations process. For example, in the 113th

Congress, H.R. 5016 (Financial Services and General Government Appropriations Act, 2015), as

passed by the House on July 16, 2014, would have provided that none of the funds made

available in the FY2015 FCC appropriation could be used to prevent 20 states from implementing

their own laws with respect to the provision of broadband by the state or a municipality or other

political subdivision of the state.58

Another way Congress could support municipal broadband is through funding broadband

infrastructure, although funding initiatives are often balanced against fiscal considerations and

against concerns over whether federally funded networks unfairly compete against private sector

broadband deployment.

Ultimately, whether municipal broadband should be encouraged or restricted is one of many

policies that Congress continues to consider for promoting broadband deployment. These include

loans and grants for broadband infrastructure deployment; universal service reform; tax

incentives to encourage private sector deployment; regulatory and deregulatory measures; and

spectrum policy to spur roll-out of wireless broadband services. Some of these policies may be

considered in the context of efforts to rewrite the Communications Act of 1934. To the extent that

Congress may consider the various options for promoting broadband, a central issue is how to

strike a balance between providing government support for broadband in areas where the private

sector may not be providing acceptable levels of broadband service, while at the same time

minimizing any deleterious effects that government intervention in the marketplace may have on

competition and private sector investment.

58 Amendment offered by Representative Blackburn on House floor, July 15, 2014. The House adopted the amendment

by a vote of 223-200 on July 16, 2014. This language was not enacted in the final version of the legislation, P.L. 113-

235.



Author Contact Information

Lennard G. Kruger

Specialist in Science and Technology Policy

[email protected], 7-7070

Angele A. Gilroy

Specialist in Telecommunications Policy

[email protected], 7-7778

Documents

Municipal Broadband: Background and Policy Debate · Municipal Broadband: Background and Policy Debate Congressional Research Service 2 Finally, there is a cooperative model, which